DBRS Morningstar Confirms University Health Network at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Secured Bonds rating of University Health Network (UHN or the Hospital) at AA (low) with a Stable trend. The rating reflects UHN's strong operational and financial links to the Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend) and the absence of any material weakness in the Hospital's governance, operating performance, leverage, and financial strength. As the largest hospital network in Ontario and Canada, UHN receives a high level of public funding and is subject to considerable government oversight.

DBRS Morningstar assigns the same rating to debt issued by important hospitals as to their provincial governments, provided that there are no material deficiencies or concerns. DBRS Morningstar believes that the greatest likelihood of implicit support arises from the importance of healthcare to provincial governments, high levels of government funding, and significant control and oversight exercised by provincial governments. The Coronavirus Disease (COVID-19) pandemic has reinforced this view as hospitals remain critically important to the Province's coronavirus response and continue to receive additional financial support and resources.

Despite the onset of the pandemic late in the fiscal year, UHN continued to report positive operating results, recording a surplus of $30.6 million in 2019-20. This represents UHN's best result since 2013-14. Although the coronavirus has had a dramatic impact on Hospital operations, as a result of a wide array of public health measures and emergency measures introduced to respond to the pandemic, DBRS Morningstar expects the financial impact on the Hospital to be manageable. Given the tight linkage to the Province, and provincial responsibility for healthcare, DBRS Morningstar anticipates that most coronavirus-related costs will be reimbursed. Furthermore, UHN has played a central role for the Province in procuring personal protective equipment (PPE) for various organizations, demonstrating its continued importance to the broader provincial healthcare system.

UHN’s debt burden continues to fall, primarily driven by amortization of the Secured Bonds. At March 31, 2020, total debt was $166.6 million, down from $190.8 million the previous year. Along with its updated Strategic Plan introduced in 2019, UHN is in the process of finalizing a Facilities Master Plan, expected later this year. Together, the Strategic Plan and Facilities Master Plan will inform capital investment priorities and financing requirements going forward. DBRS Morningstar anticipates that UHN may require additional debt to fund upcoming capital priorities. UHN will also look to other sources to fund capital, which may include real estate, foundations, and contributions from operations.

RATING DRIVERS
Any change to the Province's rating would trigger an equal change to the rating of UHN's Secured Bonds. While unlikely, UHN's rating could fall below that of the Province should the Hospital exhibit material weakness in operations, management/governance, operating results, leverage, or financial strength.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Canadian Public Hospitals (April 20, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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